Reactions to the Microsoft Decision

The reaction to the CFI’s Microsoft decision (press release here) thus far has been largely negative.Â Here’s a sample:

Luke Froeb: “Disappointingly, the Court failed to articulate a principle that would tell firms when they are competing on the merits and when they are going to violate the increasingly murky European antitrust rules about dominant firm behavior.”

Tom Barnett: “We are, however, concerned that the standard applied to unilateral conduct by the CFI, rather than helping consumers, may have the unfortunate consequence of harming consumers by chilling innovation and discouraging competition.”

The WSJ Editorial Page: “this could get out of hand faster than the click of a mouse. Microsoft’s general counsel, Brad Smith, points out that Apple’s iPod dominates the MP3 player market, in which Microsoft’s Zune is the underdog, and that Google’s search engine has whipped Microsoft’s MSN and all other comers. Not to mention the near-monopoly in some mainframe-computer markets held by IBM, which joined Sun Microsystems in pushing Brussels to take on Microsoft in 1998. Mr. Smith seems to be implying that two can play at this game of making “strategic complaints.”

A few thoughts of my own are below the fold.

My guess is that the Trans-Atlantic fireworks are just about to get started.Â I cant help but read this decision as a fairly transparent attempt to cloak a decision to protect competitors rather than competition in the language of the “effects-based” analysis.Â There are a few poorly worded sections of the decision that I suspect will be frequently quoted by commentators criticizing the decision, e.g., inferring a “foreclosing effect” from harm to rivals of Windows Media Player and the countless references Microsoft’s ability to impair “the competitive market structure” by harming rivals.Â

Neelie Kroes’ comments are also consistent with the view that the European approach to single firm conduct is much different than the domestic approach and far more comfortable engineering market outcomes:

But obviously the path Microsoft took until today is far too much. It will have to diminish by more than a couple of %. We want the market to be open, so that competitors can do their job … .

We know that one single producer has a market share of 95%. This is clearly a monopoly and this is not acceptable. No competitor has an incentive to enter such a market. I want Microsoft’s market share to diminish to significantly less than 95%. I can’t say that it has to be precisely 50% or whatever number, but it has to be significantly less than 95%.

I will reserve more detailed comment on some specific aspects of the decision for later.Â Suffice it to say for now that I’m having a difficult time identifying a limiting principle in the CFI’s analysis for distinguishing violations of Article 82 from efficient single firm conduct.Â An effects-based approach, like that adopted by the Europeans in other areas such as merger analysis, is built on those critical distinctions.Â I just don’t see them articulated in this decision which seems to roughly approximate a per se rule against bundling for dominant firms — at least so long as the bundling is successful with consumers.Â There are certainly conditions under which unilateral firm conduct such as tying can harm consumers.Â While I may believe that the probability of such harm is low in practice, even those who believe this probability is significantly higher than I do believe that harm to a rival is a sufficient proxy for loss of consumer welfare to end the analysis.Â Without such principles identifying precisely how the conduct at issue harms competition and not just competitors, AG Barnett and the commentors quoted above are surely correct that this type of decision may do more harm than good for consumers.

*DISCLAIMER: It should go without saying, but won’t, that the views I express here are my own and do not necessarily reflect those of the Federal Trade Commission, any Commissioner, or anybody else that works there.Â

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2 responses to Reactions to the Microsoft Decision

All of the practices at issue, like most subjects of antitrust concern in the single firm context, have both pro-competitive justifications and the possibility of anticompetitive effects. The key policy question for antitrust is how to identify the latter without sweeping in the former.

Holding the specifics of this decision aside for the moment, it is fairly obvious that a rule that makes harm to a rival a sufficient condition for liability will necessarily deter pro-competitive conduct. You can quarrel with whether the decision endorses this rule. That’s fine. But the general principle that an overinclusive liability rule for single firm conduct can harm consumers by deterring pro-competitive conduct and innovation is not too controversial and fairly straightforward.

I read the press release. The EC found Microsoft had a dominant position and comitted exclusionary conduct for refusal to allow connection to its essential facility, and for tying its Windows Media Player to the Windows OS. Essential Facilities and Tying are garden variety monopolization practices that have been around forever.

I fail to see how these findings are any different from any number of traditional antitrust cases, or how they will “chill” innovation. In fact, they should encourage innovation by opening up previously closed platforms.